Will 2015 Be the Year People Actually Do Something About Income Inequality?

If you needed further evidence that we live in a global
dystopia where rich people dine like kings on caviar and champagne in compounds walled off
from the destitute, huddled masses, allow me to direct your attention to
No. 15 Renwick. A new high-end Manhattan real
estate property marketed by developers as the city's first "steampunk luxury
condos," the Renwick plays into the aristocratic fantasies of people who buy $7
million apartments, the pitch for the building focuses not on condos themselves,
but on Victorian-esque "Characters" who are featured in the building's marketing materials lounging around in penthouses and Zen Gardens amid a tableau of minimalist furniture and faux 19
th-century
home goods.

It's an absurd way of attracting attention to yet another gilded Manhattan development, sure, but also a
cogent reminder of the erosion of the American experiment, and of the looming
class war that could erupt at any point. The "Characters," according to the building's website, "embody the creative persona of
today's Hudson Square resident and the insider nature of the single-block
Renwick Street." All that's missing are towering cakes and peasants wielding
pitchforks.

IGI-USA

We've known since the 1970s that the gap between rich and
poor is widening, but recently, it's just started to
feel worse. The Renwick sales pitch is just another sign that rich
people and their children live increasingly isolated, and fabulous, lives, counting
their treasure in luxury colonies while the rest of us drown in
student loan debt and hope this isn't the month you'll have to start selling our
bodies on Task Rabbit.

At this point, nearly everyone agrees that this is a
problem. Inequality—and the class envy that it engenders—has become the undercurrent
running through our political and social debates, threatening to erode
democratic systems and derail the fragile economic recovery. In its 2015
outlook, the
World Economic Forum identified growing inequality as the No. 1 risk facing the
global economy, noting that it threatens to undermine social stability and
weaken political systems around the world.

It's not hard to see why. A
Global Wealth Report published by Credit Suisse researchers this fall found that the
bottom half of the global population now own less than 1 percent of total
wealth; the richest 10 percent, meanwhile, control 87 percent of global assets,
a full 48 percent of which are held by the richest 1 percent. An
Oxfam study released last month confirmed those numbers, and projected that the 1
percent would hold more than 50 percent of global wealth by 2016, if trends
continue.

"At
the top end, executives and others are earning higher salaries than ever before
and as they save and invest they will become steadily wealthier," said
economist James Davies, who coauthored the Credit Suisse report. "In the
middle and upper-middle, saving and investment should also continue strong as
the population continues to age and people prepare for retirement. Young people
and low-income people will have little room to save, but that has been true for
a long time."

As
Davies suggests, inequality feeds on itself, begetting higher concentrations of
wealth at the top of the economic pyramid. In the US, where Democratic
politicians, including President Obama, have relentlessly campaigned against
the income gap, the problem goes far deeper when you look at overall wealth.
According to a
paper published this fall by Emmanuel
Saez, an economist at UC Berkeley, and Gabriel Zucman of the London School of
Economics, the wealth gap in the US is at its widest point in
decades, as high incomes lead to further asset gains among top earners.

"Income inequality," Zucman and Saez write, "has a snowballing effect on the wealth
distribution: top incomes are being saved at high rates, pushing wealth
concentration up; in turn, rising wealth inequality leads to rising capital
income concentration, which contributes to further increasing top income and
wealth shares." At these levels, the authors noted in
an accompanying blog post, the wealth gap now
constitutes "a direct threat to the cherished American ideals of
meritocracy and opportunity."

Whatever
class envy this has inspired is compounded by the fact as the wealthy get
wealthier, their ranks are also expanding. According to last year's World Ultra
Wealth Report, an annual survey of the global super-elite published by UBS and
the private luxury research firm Wealth-X, the number of people with a net
worth of more than $30 million grew by 6 percent in 2014, to 211,275—a group that, combined, controls more than $30 trillion in wealth, if you're counting, and they almost certainly are. That means that while the
super-rich—or ultra-high-net-worth individuals as they prefer to be called—make
up only 0.004 percent of the world's population, they control almost 13 percent
of the planet's wealth.

The report's authors project that those numbers will
continue to swell, noting cheerfully, "We expect the ultra affluent
population to continue to dominate and influence the global economic landscape
with their wealth, whether in total assets under management or luxury
purchases, as they have much larger cash balances as well as a longer history
of access to wealth."

"More and more people at a younger and younger age are going to
reach a point where they have wealth that will exceed or far exceed what they
need for their desired standard of living in the future," said Paul Schervish, director
of the Center for Wealth and Philanthropy at Boston College. "More and more
people are going to be solving or near to solving the economic problem in their
lives—and that means that there will be a change in the moral code."

Already, a kind of tribalism has taken hold among the elite and
their children, even in the US, where this sort of artificial aristocracy is
supposed to be anathema. The UBS/Wealth-X survey estimates that, on average,
ultra-high-net-worth individuals have seven ultra-high-net-worth friends (and if eight of them get together, that means at least $240 million is in the same room). Unbound by
international borders—and, in many cases, laws—these elite groups are rapidly
colonizing cities like London, New York, Vancouver, and
Miami,
driving up real estate prices with luxury developments that give emerging-market kleptocrats a place to quietly squirrel away their shady fortunes.

So while the rest of you poor suckers struggle with
stagnant wages and median household income that's still well below what it was before the Great
Recession, the super-rich are limited only by their imaginations, free to
pursue their strangest, and most dystopian, fantasies.
Urban rooftop llama farms? Done. Space
travel?You got it. Eternal life?
They're working on it.

The Necker Nymph, an underwater aircraft designed by British billionaire Richard Branson. Image via Virgin

The
Wealth Report, an annual update
on the super-rich released by the British real estate firm Knight Frank,
provides some useful insight into the dreams of the extraordinarily fortunate: "Expect more property
demand, more development, more travel and, as a result, more people searching
for really private escapes," the most recent edition reads. "Maybe it's time to
invest in that South Pacific island you've had your eye on. Assuming it can
accommodate a runway and a space port, a James Bond villain–esque hideaway will
soon be convenient for, well, just about everyone." A section devoted to investments in space marvels at new opportunities in asteroid mining, noting
that Knight Frank has published a list of "asteroids to watch" to confirm the
value of "key space rocks that will be coming (relatively) close to Earth soon."
Apparently without irony, the report cautions investors to lawyer up, though,
because "existing property law is slightly vague about settling ownership
disputes in space."

If 2014 was the year that income inequality saturated the public consciousness, 2015 could be the year that people actually did something about it.

"The real story is not the upper-middle class
versus everyone else—it's the top .001 percent versus everyone else," said
Cornell University economist Robert Frank. "It's a winner-take-all economy.
[The wealthy] have techniques that enable them to serve the entire global
market, so now there are no limits on how rich they can get." The effects of
this are insidious, Frank argues, driving up prices and forcing the middle
classes to spend money they don't have, or settle for less.

If 2014 was the year that income inequality
saturated the public consciousness, 2015 could be the year that people actually
did something about it. Across the world, the concentration of wealth—and the fabulous flaunting of it by
the world's millionaires and billionaires—is fomenting populist outrage against
a system that seems increasingly rigged.

In Europe, concerns about high unemployment and
austerity policies, have lead to a rise in euroskeptic parties, culminating in
this week's standoff between euro zone finance ministers and Greece's new
far-left government
over the terms of the country's bailout deal. Skyrocketing
real estate prices driven by rich foreigners have led both Canada and Australia
to put restrictions on wealthy immigrant investments, and
protests over London's insane housing market could drive the UK to take similar measures.
From Ferguson to Hong Kong, recent protest movements and general unrest hint at a looming class warfare that no one wants to talk about.

Even rich people know this inequality isn't like the inequality of yesterday. "The
divisions could get wider," Goldman Sachs CEO Lloyd Blankfein said in an
interview with CBS News last June in which he blamed inequality for those divisions. "If you can't legislate, you can't deal with
problems. [If] you can't deal with problems, you can't drive growth and you
can't drive the success of the country. It's a very big issue and something
that has to be dealt with."

At the World Economic Forum in Davos last month, other Masters
of the Universe seemed to agree, warning one another about the instability
their wealth could wreck on the global economy. One economist told a panel that his
nervous hedge funder friends are already planning escapes from the inevitable
outbreak of class war. "I know hedge fund managers all over the world
who are buying airstrips and farms in places like New Zealand because they
think they need a getaway," he said,
according to the Guardian. "People need to
know there are possibilities for their children—that they will have the same
opportunity as anyone else. There is a wicked feedback loop."

In the US, determining what will happen
with income inequality "is as much political as it is economic speculation,"
said Chad Stone, the chief economist at the Center on Budget and Policy
Priorities, a progressive Washington think tank. The simplest solution is for
the government to raise taxes on the rich. President Obama
proposed as much in his State of the Union this year, unveiling a so-called "Robin Hood" tax plan that would raise taxes on capital gains, ending tax breaks
on inherited assets; impose new borrowing fees on the country's biggest banks;
and prevent rich people from accumulating massive stores of cash in
tax-preferred retirement accounts.

GOP leaders in Congress have already made it clear that these
proposals aren't going to go anywhere. Although Republicans have started to
acknowledge that income inequality is problem, the party's distaste for taxes
and banking regulation are unlikely to check income growth at the highest
level. "Republican policies would take us in the opposite direction," said
Stone. How far they can go, he added, "depends on how much availability
Republicans have to push their agenda.

"In the immediate future, I
don't see any major restraints on the concentration [of wealth] at the top," he
added. "Depending
on whether wages pick up, we could see some improvement at the bottom. But if the
stock market remains strong, levels at the bottom won't catch up to those at
the top."

Already, the question of how the country will grapple with its
gaping wealth gap has become a central issue of the nascent presidential
campaign. A
Gallup poll released in January found that two-thirds of Americans—including
a majority of Republicans—are unhappy with the way income and wealth are
distributed in the US. More surprisingly, a
recent focus group found that the potential 2016 presidential candidate who
elicited the most positive response from voters, regardless of party
affiliation, was Massachusetts Senator Elizabeth Warren, whose populist,
anti-corporate schtick has
resonated with the progressive wing of the Democratic Party.

Recognizing the reality of these numbers, Republicans have
started appropriating Democratic rhetoric on income inequality, moving away
from Ayn Randian notions about the "morality of capitalism" and the ingratitude
of the 47 percent. On the Democratic side, Hillary Clinton is also apparently
grappling with how to address the inequality issue, eager to avoid a populist
left turn that could derail her expected coronation as the party's presidential
nominee. A
New York Times story published this
week reported that the former secretary of state has met with more than 200
economists to try to hammer out a plan around the idea of "inclusive
capitalism," which contends Americans don't
hate
rich people, they just want to feel like they could join them.
The challenge, according to the
Times,
is to address discontent over the wealth gap, without vilifying rich people
like herself and the people who will bankroll her campaign.

Which, of course, underscores the real problem
with inequality—in addition to undercutting when wealth concentrates so
heavily at the top, it starts to infiltrate and corrode the political system,
poisoning the democratic process and putting the levers of power in the hands
of the very few. The reality is that rich people pay for campaigns. So
regardless of what policies they propose to fix the wealth gap, candidates will
always face pressure to protect the top of the pyramid.

Whether this will lead to a class revolt, though,
depends on how we feel about our own economic circumstances. "Income inequality has
already risen so much in the US that it is possible that it has hit its peak,"
said Davies. "If the economy continues to improve, as it has been doing in the
last little while, that will help all income groups."

If
wages pick up, and voters no longer feel like they are one broken arm away from
financial destitution, the fact that rich people are getting richer may no
longer seem like such a pressing injustice. "Whether income inequality fades,
or remains in the public debate has a lot to do with consumer confidence,"
Stone explained. Because in America, voters don't care how rich you get as long as they don't feel like they'll be poor forever.